Pacific Rim Report No. 52, January 2009
China’s Relations with Mexico and Cuba: A Study of Contrasts
by Adrian H. Hearn, Ph.D.
Adrian Hearn is a Senior Research Fellow at the University of Sydney, and Kiriyama Research Fellow at the University of San Francisco Center for the Pacific Rim. Adrian is conducting an anthropological study of the political and cultural implications of China’s deepening engagement with Latin America.
Hearn has undertaken research in Cuba (three years), China (ten months), Senegal (one year), and Mexico (eight months), and is currently teaching a course on China-Latin America relations at the Universidad de Baja California. He is the author of Cuba: Religion, Social Capital, and Development (Duke University Press, 2008), China and Latin America: The Social Foundations of a Global Alliance (Duke University Press, forthcoming), and editor of Cultura, Tradición, y Comunidad: Perspectivas sobre el Desarrollo y Participación en Cuba (Imagen Contemporánea and UNESCO Center for Human Development 2008.)
We gratefully acknowledge The Kiriyama Chair for Pacific Rim Studies at the USF Center for the Pacific Rim for underwriting the publication of this issue of Pacific Rim Report.
In terms of economic openness and political ideology Mexico and Cuba are at opposite ends of the spectrum. Nevertheless, for China both hold high strategic value. Examining China’s relations with Mexico and Cuba opens an analytic window into the way that bilateral commercial, cultural, and diplomatic cooperation programs have adapted to distinct local conditions. Based on interviews and observations gathered during three years in Cuba, ten months in China, and eight months in Mexico, this Pacific Rim Report outlines some of the positive and negative local responses that intensifying engagement with China has produced. It also suggests that China has effectively tailored bilateral programs to local environments to advance common economic, political, and cultural objectives.
China’s economic impact across Latin America has been uneven. Its demand for energy resources has driven up commodity prices, benefiting exporters such as Argentina and Brazil (soy), Chile (copper), Peru (iron, fishmeal), and Venezuela (crude oil) (Jiang 2005, Zweig and Jianhai 2005). Nevertheless, as the case studies of José Luis León Manríquez (2006) show, the exports of Mexico and the countries of Central America consist primarily of manufactured products and textiles, resulting in seemingly insurmountable competition from a tidal wave of legal and illicit Chinese imports. Romer Cornejo (2005) suggests that this regional variation results in part from the structural adjustments of the public and private sectors pursued by Latin American countries to facilitate cooperation with China. To examine this issue in depth, in 2006 the Red de Estudios de América Latina y el Caribe sobre Asia del Pacífico (Latin American and Caribbean Study Network on Asia and the Pacific, or REDEALAP) of the Inter-American Development Bank (IADB) brought together scholars from IADB member countries to debate the effectiveness and future trajectory of structural adjustments in order to deepen cooperation with China in areas ranging from fiscal integration into regional trade blocks to natural disaster relief (REDEALAP 2006).
A recent book from the OECD (Santiso 2007) argues that although China’s emergence represents a valuable opportunity for Latin America to develop alternative economic partnerships that reduce dependence on the United States and Europe, resource exports to China could gradually push the region into a ‘raw materials corner’. Similarly, a book from the Inter-American Development Bank entitled, The Emergence of China: Opportunities and Challenges for Latin America and the Caribbean, argues that to avoid future dependence on primary resource exports, Latin American governments should adopt long-term strategies that position their countries as service providers for the expanding Chinese middle class, particularly in the tourism and education sectors (Devlin et al. 2006). The authors signal that to climb the industrial value chain in this way will require a greater coordinating role for Latin American governments, since development strategies guided by the market alone, adopted in part as a backlash to previous import substitution strategies, will naturally favor short-term growth through commodity export.
One summary of China’s relations with six Latin American countries (Jorge I. Domínguez et al., 2006) juxtaposes political cooperation with trade patterns. The study argues that although economic considerations are paramount, Cuba, Venezuela, Argentina, and Brazil have to varying degrees used China to balance U.S. influence in the region. Varying degrees of alarm about this prospect are expressed in the publications of research institutions and think tanks associated with the U.S. military and government (CLATF 2006:2, Eisenman 2006, Lam 2004, Mrozinski 2002). Indeed, the ‘triangular’ relationship between China, Latin America, and the United States is emerging as a prominent topic of debate (e.g. Arnson et al. 2007).
China’s multiple objectives in Latin America are evident in the diversity of its activities in Cuba and Mexico. Although Cuba harbors some economic value for China through oil exploration, nickel extraction, biomedical collaboration, and electronics sales and manufacturing, its appeal is mainly political. Diplomatic links with Cuba promote China’s image as a ‘non-aligned’ protagonist of ‘South-South’ cooperation, providing ideological common ground with the eight mineral-rich countries that make up Latin America’s ‘New Left’. Mexico, by contrast, offers China more conventional economic incentives such as a market for Chinese consumer products, a manufacturing base with geographic and legal access to North American markets, and the prospect of potentially massive investment in the oil sector. The following sections discuss the challenges and opportunities that China has brought to Mexico and Cuba, and the steps taken by both governments to respond effectively.
China and Mexico: Playing an Uneven Field
Over the past decade the threats posed to Mexico’s economy by China have become well known, owing primarily to intensifying competition from legal and illicit Chinese imports both domestically and into Mexico’s primary export market, the United States. Chinese demand for energy resources has simultaneously forced the Mexican government to confront the socially unpopular and strategically uncertain prospect of privatizing the oil industry. The economic impasse produced by this combination of pressures has provoked fears of an impending ‘China threat’ across Mexico’s industrial landscape.
Mexican apprehensions of an emerging ‘China threat’ find historical precedence in the observations of Vladimir Lenin in the early 20th century, Raúl Prebisch in the 1950s, and Noam Chomsky since the 1980s: that Latin America’s prospects for moving inwards from the periphery of the global market lie in less dependence on resource exports and more in attention to educational and technical advancement. Mexican leaders have been aware of this at least since the 1930s. In 1938, for instance, Lázaro Cárdenas nationalized the oil industry under the PEMEX Corporation with the aim of boosting the state’s budget for social programs, technical training, and industrial upgrading. Successive governments deepened this model of development, gradually moving Mexico toward import substitution and industrialization. The collapse of global commodity markets in the late 1970s and a chronically overvalued peso, however, led to a reconsideration of trade policies and the initiation of measures to privatize the economy.
Mexico’s rather abrupt adoption of neoliberal economic policy through the 1986 General Agreement on Tariffs and Trade (GATT) and the 1994 North American Free Trade Agreement (NAFTA) brought a series of dilemmas, among which was the question of whether or not the oil sector would remain under the administrative control of the state. PEMEX ultimately survived the economic reforms associated with GATT and NAFTA and is today the country’s most significant economic resource still under national management. Confronted by a popular perception that industrial privatization has already gone too far, Felipe Calderón (and Vicente Fox before him) have thus far made only minor advances in opening the oil sector to private investment. These consist of limited projects to foreign (including Chinese) contractors, though not in the area of exploration.
Until recently Mexico stood out as an industrialization success story, with over 85 percent of its exports made up of manufactured products such as textiles, household appliances, and automobile parts. During the early 1970s, when the foundations for these industrial advances were being laid, President Luis Echevarría developed cordial relations with the Chinese government, supporting its position on Taiwan and made Mexico China’s closest trade partner in Latin America. But at this time China was also laying the institutional foundations that would later underpin its transition to ‘market-socialism’, a transition whose enormous, low-cost commercial output has effectively undercut Mexico’s industrial achievements.
In 2002 China surpassed Mexico’s position in the U.S. market, causing the loss of over 672,000 Mexican jobs across 12 industrial sectors. CEPAL (2004) reports that 2,500 of these jobs were lost from the maquiladora or export-processing sector alone as a result of the relocation of manufacturing operations to China. By 2003, Sony, NEC, VTech, and Kodak, together with 85 percent of shoe manufacturers in Mexico, closed their Mexican operations and moved to China (Domínguez et al. 2007:38-9). Further losses will likely result from the December 2007 expiration of Mexico’s ‘peace clause’ tariffs on imported Chinese shoes, textiles, and toys under World Trade Organization (WTO) guidelines.
Mexico’s inability to compete with China in industrial manufacturing has driven it to begin emulating the resource intensive strategies of other Latin American countries, increasing oil production to roughly 15 percent of total exports in 2005 (Dussel Peters 2007:19). Industry watchers claim that Mexican oil output could rival that of Saudi Arabia, but stress the need for investment to the tune of $20 billion per year to exploit existing fields and explore new discoveries such as the deepwater Noxal field in the Gulf of Mexico (Reuters 2004, Rueda 2005). Companies from China, the United States, and elsewhere are lining up to provide this investment, intensifying the debate over whether the oil and electricity sectors should be privatized in order to boost productivity (Hogenboom 2007:11).
Adding to the bilateral tension, Mexico is China’s largest Latin American export market: of the $15 billion of Sino-Mexican bilateral trade reported for 2007, $11.7 billion was made up of Chinese imports to Mexico (Oppenheimer 2008). One report calculates that for every dollar worth of goods Mexico exports to China it imports $31 worth of Chinese goods (McKinley 2005). Furthermore, illegal Chinese imports (particularly apparel) are thought to account for close to 60 percent of the Mexican retail market, driving industry workers to mount periodic street protests outside the Chinese embassy and the national Economics Secretariat in Mexico City (CANAINTEX 2006, Sourcemex 2003). According to a 2005 national poll, 52 percent of Mexicans identify China as a “source of unfair competition” (cited in Domínguez et al. 2006:12), and in the words of Irma Gómez Cavazos, Assistant Minister for Economic Relations and International Co-operation in the Mexican Ministry of Foreign Affairs, “the vision of China as a threat to the Mexican economy is getting stronger every day” (Gómez Cavazos 2005).
Mexican suspicions of Chinese imports are compounded by concerns about their safety. In 2007 Chinese-manufactured toothpaste containing potentially lethal diethylene glycol, a cheap substitute for glycerine, was recalled from shelves worldwide. The same ingredient was included in Chinese-made cough medicine, which killed 100 people in Panama (French 2007). Other defective Chinese products to reach Latin America include disintegrating automobile tires, contaminated pet food, and seafood containing high levels of antibiotics to prevent infections from the industrial waste of China’s Eastern shores.
The Mexican media has made much of these problems, printing a broad selection of national and foreign-authored reports of defective imported products. In June 2007, for instance, the Mexican newspaper Mural reprinted a story that concludes, “There was a time when the words ‘made in China’ evoked an immediate perception of ‘bad quality’. These days many North Americans and Europeans perceive ‘danger’” (Martin 2007). Chinese media has responded by accusing commercial competitors in western countries of over-reporting such incidents to fuel misguided perceptions of a ‘China threat’ (French 2007). Motivated by the damage that this emerging culture of fear could inflict on bilateral economic and political relations, both governments have begun to explore potential pathways toward a more balanced partnership. The following sections outline some of the economic and cultural aspects of these efforts.
Overcoming the Imbalance: Trade Considerations
Mexico’s trade imbalance with China is deep, but it is confined to a relatively narrow cross-section of manufactured products. Chief among these are electronics, autoparts, and optical photographic equipment. The Mexican government, particularly since China’s 2001 accession to the WTO, has advised manufacturers to divert production away from these and other competing sectors, and focus instead on sectors that either draw on Mexico’s inherent competitive advantages, particularly its geographic proximity to the United States, or that show potential for expansion in the Chinese market.
The burgeoning Chinese middle class that is propelling (and to an extent is propelled by) its country’s emerging market has begun to show the depth of its influence on domestic economic restructuring, institutional transformation, and political leadership (Goodman 2008, Mulvenon 2004). Attuned to this development, global manufacturers have demonstrated their awareness of rising purchasing power in the Chinese population through product lines and advertising campaigns tailored to the desires of domestic consumers. Indeed, as Enrique Dussel Peters (2007:14) notes, although China out-competes Mexico in the U.S. market, particularly in electronics and auto parts, some Mexican corporations have begun to establish themselves in China as vendors of high-end electronics and specialized auto parts, synthetic fibers, steel and plastic products, and beer. The Mexican cement company CEMEX, which has traditionally focused its operations in the United States, has also made inroads into China both to source cement for its U.S. projects and to capitalize on the intense pace of construction in urban China. Emerging Chinese tastes have also begun to provoke action from certain Mexican specialty food companies, such as Gruma S.A.B. de C.V., which recently opened a $20 million tortilla plant in Shanghai (Business Wire 2006). The growth of China’s domestic market is a positive development for Mexico, both because of the new opportunities it creates for Mexican retailers, and because it will likely ease competition through trade diversion as Chinese manufacturers increasingly target customers closer to home than Mexico and North America.
Geographic proximity to the United States is a key competitive advantage for Mexico because it opens opportunities to expand trade in products that are not cost-effective or feasible for China to ship across the Pacific Ocean. New and used cars, buses, trucks, motors, auto parts and accessories are all cases in point, as are farm products and other perishables that benefit from existing commercial arrangements under NAFTA. More problematic for Mexico are products that are easier to transport, such as recording instruments, telecommunications equipment, televisions, VCRs, small generators, textiles, and cotton goods. Nevertheless, owing to a combination of technical expertise and an advanced logistical infrastructure of railways, highways, air and water supply, and communications, it is often less expensive to produce specialized electronic equipment in Mexico despite the difference in labor costs ($1 at Chinese factories for every $3.5 dollars paid in Mexico) (Rovelo 2005).
The relative value of Mexico’s competitive advantages may grow as production costs rise in China. Although the coastal region stretching from Hong Kong northward through the Pearl River delta has become known as the ‘factory of the world’, its appeal as a manufacturing base may be declining. Companies such as Adidas have closed down their factories in the region and are relocating to the lower-wage—though logistically challenging—inland provinces (Garnaut 2008:43). Other manufacturers are exploring the potential of countries like Vietnam, Thailand, and India as alternative homes for their factories. Rising production costs in China increase the likelihood that Mexico, with its combination of advanced transport infrastructure, geographic proximity to the United States, and membership in NAFTA, may gradually reclaim the ground lost to China as a manufacturing source for the U.S. market.
Electronics manufacturers Eaton, IBM, and HE Sanmina-SCI have plants in China but utilize their Mexican facilities to produce high-end equipment for markets throughout North and South America. The Chinese electronics firm Lenovo has also shown an interest in Mexico, recently announcing that it will build a $20 million plant in Apodaca, a town in the northern Mexican state of Nuevo Leon. This, it says, will create 1,400 jobs, of which 20 percent will be for highly skilled workers designing new technology and logistics (Yao 2007). Other Chinese companies operating in Mexico include the textile manufacturer Sinatex, which has established a $9.6 million plant in Sonora to target the U.S. cotton market; Huawei Technologies, which has spent over $200,000 to develop communications, computers, and fiber optic cables; Xin Tian, which operates a 1,000-hectare rice plantation in Campeche and a $10 million commercial center in Mexico City; and TTE, which since 2004 has employed over 2,000 Mexicans to manufacture color televisions in its factory in Juárez (Jia 2005).
Some analysts suggest that Sino-Latin American collaborations of this sort would be facilitated by bilateral trade agreements, noting Chile’s Free Trade Agreement with China, signed in 2005, as an example to be emulated (ECLAC 2006). It is true that comprehensive trade agreements support bilateral integration, but it should be remembered that the way Chile and Mexico relate economically to China are fundamentally different. The China-Chile FTA removed Chinese duties on 2,834 Chilean exports to China (chief among which is copper) but also removed tariffs on 5,891 Chinese consumer goods exported to Chile. In 2004 Argentina rejected Beijing’s proposal for an FTA over concerns about the damage that such an influx of imports could do to its already fragile economy. For Mexico, whose present commercial relations with China consist primarily of trade in manufactured products, an FTA would create collaborative opportunities, but would require precisely defined exclusion clauses in order to avoid augmenting the already chronic competitive imbalance facing Mexican manufacturers.
Expanded cooperative ventures with Chinese enterprises, supported or not by an FTA, could enable Mexico to develop mutually beneficial production chains capable of penetrating global markets. Increased intra-industry trade could open access routes to Asian markets and foster the integration of new technologies, thereby reducing face-to-face competition in third markets like the United States (ECLAC 2006). As Mexican Foreign Minister Luis Ernesto Derbez recently put it,
The question is not whether Mexico is losing the U.S. market, but rather how we can establish a strategic relationship with China to penetrate that market together.[...] Many Mexican business executives already understand that they must invest in China with Chinese partners and invest in Mexico with those same partners. Then they can go after the U.S. market together...We are developing three-way businesses between Mexico, China and the United States, and the participants have begun to understand what globalization of trade means and how to establish a structure that benefits everyone (IADB 2004).
Such a strategy would require careful legal planning in order to avoid infringement of U.S. antitrust laws, but in principle it is a reasonable solution that resembles the existing practice of shipping components into the NAFTA zone and the special economic areas of Panama (such as the Howard Farfan facility) for assembly and tax-free entry into the United States.
Considering the rapid growth of the domestic Chinese market, Mexican manufacturers should keep abreast of emerging trends and opportunities there, with a view to commercial expansion into niche areas. Costa Rica has shown what can be achieved, exporting locally manufactured Intel computer chips around the world, including to China (Oppenheimer 2008). As discussed below, some important initial steps toward greater Mexican knowledge of the Chinese market have been advanced through educational exchange and research scholarships.
Educational Exchange: The Value of Culture
To promote mutually beneficial cooperation, the Chinese and Mexican governments have stepped up their commitments to bilateral education exchange programs. Educational exchange is a central component of the Chinese government’s ambitious program of institutional capacity building, Project 211, and as such has emerged as a key strategic branch of China’s foreign policy. According to Edgardo Bermejo Mora, Cultural Attaché at the Mexican Embassy in Beijing, contemporary exchange programs with Mexico draw on over three decades of bilateral collaboration:
The Chinese have always sent their technicians, students, and diplomats to a specific country to learn Spanish language and Hispanic culture. In the 1960s it was Cuba, from 1973 until about 1984 it was Mexico, and since then Spain has become more important. During the eleven years in which Mexico was the focus, the Mexican government gave scholarships to Chinese technicians to come and learn our ways, habits, and practices. Therefore, in the 1980s and 1990s, the Chinese had a strong link to Mexico, which gave them a lot of political and socio-economic advantages. By 2000, in the wake of our financial crisis, the number of Chinese coming to Mexico diminished, but now the number of incoming and outgoing students is growing again. Educational cooperation is fundamental in the formation of bilateral relations. Without educational cooperation we would be really limiting the scope and opportunities of collaboration (interview, December 13, 2007).
Mexican universities such as the Tecnológico de Monterrey attract a significant number of Chinese students, many of whom are sent by their employers or through Chinese government scholarships to learn Spanish and Latin American business cultures. China’s three Petroleum Universities, funded largely by the China National Petroleum Corporation (CNPC) and the China National Offshore Oil Corporation (CNOOC), send students to Mexico for this kind of training before dispatching them to Venezuela, Peru, and Ecuador.
To expand such programs and create new ones, Hu Jintao and Wen Jiabao recently signed a bilateral ‘Cultural Development Agreement’ with Mexico, which resulted in the 2006 inauguration of Latin America’s first Confucius Institute in Mexico City. At present there are 210 Confucius Institutes operating in over 60 countries. Although they harbor no specific political objective, the official Chinese news service People’s Daily acknowledges that they and their associated programs serve to minimize “the misconception of [China’s] development as the ‘China threat’ by making its traditional value systems known to the world” (People’s Daily 2006). The hope seems to be that greater cultural familiarity will offset local misunderstandings, suspicions, and fears associated with China’s growing influence. This is a timely objective in Mexico, but the extent to which such programs will ease apprehensions and stimulate creative thinking about new forms of official commercial cooperation remains to be seen.
In 2005 China began to offer 300 scholarships per year for Mexican students to study in China, and Mexico reciprocated in kind (Domínguez et al. 2006:40). Led by the Secretariat of Economic Development (SEDEC) of the state of Michoacán, nine Mexican state governments now offer scholarships for students to live in China and study its business practices. Eloy Vargas Arreola, Secretary of the Michoacán SEDEC, has argued that educational exchange is a critical factor in overcoming the existing commercial imbalance, stating that, “China, a friend and ally of Mexico, poses no threat” (Kai 2006).
The growing number of Mexicans studying in China is reflected in the diversity of the programs that host them. The Asia Pacific Institute of the Tecnológico de Monterrey has developed a pioneering strategic plan for China, working with its permanent staff in Beijing and Shanghai to coordinate activities with the Mexican embassy in Beijing. With over 500 students in Beijing, Shanghai, Guangzhou, and Harbin, the Tecnológico offers long-term programs in engineering, international relations, business, and language, as well as short-term visits to embassies, factories, and work centers.
Other programs have been less creative in their design, sending students in large groups to Chinese universities and providing only minimal guidance when they arrive. According to an anonymous local source, one program in Hangzhou hosts 80 Mexican government-funded students annually in an on-campus residence hall, where their level of interaction with Chinese society—even academic society—is very low. Familiarity with Chinese culture is apparently not an objective of the local program director, who has set up a Mexican restaurant at the gates of the university. Two interviewees reported that such programs, ostensibly focused on language and business training, function largely as propaganda for Mexican politicians eager to convince their electorates that they are actively dealing with the ‘China threat’. As one interviewee put it, “I think it’s good that the Mexican government is trying to do something about China, but I feel very angry that the money is so often misused” (interview, November 3, 2007).
Educational exchange programs are inherently complicated initiatives, which tend to become more effective and tailored to local conditions over time. Such programs should ideally maximize student contact with the foreign environment through domestic home-stays, placement with local roommates, strategically focused independent research projects, and where possible, internships with local businesses and community organizations. It is too early to assess the effectiveness of Mexican exchange programs in China, but their growing appeal to Mexican policymakers and students signals an important opportunity for expansion and refinement. A committed pursuit of this opportunity at the undergraduate, postgraduate, and professional levels would expand Mexican knowledge of Chinese business practices, cultural values, and potentials for collaboration.
Prospects for the Future of Sino-Mexican Relations
Cases such as the above suggest that responsibility for Mexico’s commercial imbalance with China cannot be attributed entirely to the latter. Indeed, a growing number of Mexican analysts and institutions have begun to turn their attention to the domestic factors contributing to the uneven relationship. These factors stem largely from the commercial tariffs that, at present, are the basis of Mexico’s economic strategy toward China. Mexico was the last country to approve China’s entry into the WTO, and it did so only in return for a series of tariffs on Chinese shoes, textiles, and toys. This settlement, valid until the end of 2007, was intended to allow Mexican manufacturers time to reposition themselves for the global economy by developing their industrial capacities in sectors that would compete less with Chinese imports and create new opportunities for collaboration. Slow progress in this regard has produced pressure on the Calderón government from domestic textile and appliance manufacturers to seek an extension of import tariffs at the WTO, which it did successfully in 2008. This, however, is not a sustainable solution, and as Garza Limón puts it,
“we cannot continue with a practice...defensive or restrictive with China, and continue with accusations of unfair trade and violation of human rights; this is a pretext that justifies inefficiency” (2005:29).
One negative, though hardly unexpected, consequence of Mexico’s continuing regulatory codes is that suppliers and retailers have found creative ways to circumvent them. According to the 2007 Inquiry into Antidumping Quotas Against Imports of Chinese Origin, undertaken by the Mexican consultant IQOM Trade Intelligence, some Mexican firms have arranged legal loopholes and exceptions to antidumping quotas for their Chinese counterparts (Garc’a 2007). A related problem is the growth of the informal economy, which, as noted above, has seen illegal imports from China claim some 60 percent of the Mexican apparel retail market, drawing attention to local corruption in the customs system as a factor contributing to the trade imbalance.
Ultimately some responsibility for China’s negative economic impact on Mexico lies with both countries, but it also lies with the larger global trade regime that encompasses them. While it is true that Mexican regulation of the energy sector is preventing the inflow of FDI, it is also true that free trade will not provide a miracle solution to Mexico’s problems. Conservatives within the Mexican Ministry of Economy argue that open markets in shoes and other products will eventually benefit Mexican consumers by lowering prices, but their critics point out that multinational companies such as Wal-Mart, now Mexico’s largest private-sector employer, will reap most of the profits (Tingting 2003).
Most Latin American countries (particularly those in South America) have derived short-term economic gains from natural resource exports to China. Just as they found in dealing with the United States, though, unregulated enclave developments locked up in industrial parks and resource extraction projects not only create dependency on external enterprises, but do little to strengthen local human capacities or to create opportunities for local business (Pritchard and Hearn 2005, also see Angeles 2003). Regional dissatisfaction with this predicament is reflected in a 2006 poll conducted by the Chilean organization Latinobarometro, which calculates that 63 percent of Latin Americans have come to oppose unregulated foreign management and investment in gas, oil, and other mineral extraction initiatives (Economist 2006:42). These lessons should be born in mind as Mexico reflects on the prospect of opening its oil industry to private investment, whether from China, the United States, or elsewhere.
Some scholars believe that a coordinated multilateral approach to China will improve outcomes for Latin American countries. As Enrique Dussel Peters and Jorge Katz (2006) have argued, a region-based bilateral dialogue with China could integrate the booming resource industry into a broader, more sustainable development plan. The foundations for such a process already exist in common markets such as MERCOSUR, in which China holds consultant status. Its members (Argentina, Brazil, Paraguay, Uruguay, Venezuela) have demonstrated a commitment to defending the integrity of MERCOSUR, and although Paraguay’s continuing support for Taiwan has been an obstacle, Chinese investments in Argentina, Brazil, and Venezuela have created favorable conditions for a MERCOSUR-China FTA. The prospect for greater bilateral cooperation is strengthened by the fact that all three of these countries have used support from China to increase their bargaining power with the United States and to oppose the U.S.-backed Free Trade Area of the Americas. Indeed, Venezuela’s 2005 accession to MERCOSUR may further this objective as Hugo Chávez builds linkages with the Bolivarian Alternative for the Americas (ALBA) network (Antigua, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, Saint Vincent and Venezuela) and its associated ‘People’s Trade Agreement’ (TCP).
Mexico is well positioned to engage Central and South American countries to stimulate dialogue about the capacity of multilateral collaboration to promote regional interests vis-à-vis China. Membership in NAFTA should not stand in Mexico’s path toward simultaneously developing alternative economic partnerships. As Chile has shown through the concurrent development of FTAs with Canada, China, Mexico, Korea, the United States, MERCOSUR, and the European Union, multiple agreements can consolidate overseas business networks and secure broader access to foreign markets.
The emergence of China represents more than a temporary problem for Mexico; rather, it raises the historically enduring challenge of developing balanced and sustainable international economic relations. The threats associated with this challenge include, but extend beyond, specific cases of ineffective enforcement of customs regulations, unscrupulous profiteering from tariff loopholes, and even the encompassing problem of competition for a place in the consumer markets of the Americas. Indeed, the threats extend to the global scale in the form of economically and environmentally unsustainable development strategies based on natural resource exports.
To overcome the most impending of these threats Mexico could tighten domestic policing of illicit commerce and build knowledge of the emerging Chinese market in order to identify niche areas and develop appropriate strategies for filling them. Tortillas and cement are a good start, but there are significant opportunities to expand existing sales of specialized electronics and auto parts, synthetic fibers, steel and plastic products, beer, and a range of other items. Opportunities also exist to develop production chains based on assembly of Chinese manufactured components in Mexico, and subsequent export throughout the NAFTA zone, though this would require careful legal preparation. Expanded production of automobiles, heavy industrial equipment, and computing equipment would benefit from Mexico’s geographic proximity to the United States, sophisticated logistical infrastructure, high levels of human capital in technological development, and access to U.S. and Canadian markets.
Refined educational exchange programs that more strongly encourage face-to-face dialogue with Chinese counterparts and industry professionals would deepen opportunities for collaboration. Indeed, Venezuelan scholarship programs in China (mainly in the oil and space satellite industries) demonstrate that the prospects for long-term professional partnerships are enhanced when students are exposed to—and tested on—a broad base of technical, linguistic, and cultural experience. Mexican educational initiatives in China such as those of the Tecnológico de Monterrey have shown that strategic industrial targeting and flexibility in program design have produced positive outcomes.
At the most encompassing level, the emergence of China raises questions about the long-term viability of development models based on bilateral free trade, particularly in natural resources. Multilateral blocs such as ASEAN, the EU, and MERCOSUR, have shown a historical capacity to represent the interests of member countries through improved harmonization of trade policies. These organizations have historically structured themselves to leverage benefits from trade with the United States, providing them with a solid basis for adaptation to the emergence of China. The 21st century may turn out to be the century of regional trade accords, and a vigorous exploration of new partnerships will only benefit Mexico.
Regional integration has also become more important for Cuba, which together with Venezuela and Bolivia, has advanced the People’s Trade Agreement (TCP) under the auspices of ALBA. It is worth noting that ALBA’s preference for exchange and bartering of resources (material and human) through state-administrated programs rather than free market commerce is an approach accommodated by China’s economic policy. Indeed, even as it pursues integration into the capitalist world market as a WTO member, China often pays for Latin American natural resources with trade credits, construction equipment, infrastructure upgrading, and technical training rather than hard currency (Robles 2005).
China has not openly endorsed ALBA, but its willingness to develop commercial relations within the framework of state-to-state cooperation is an important dimension of its engagement with Latin America. For Cuba this has meant the consolidation of ‘South-South cooperation’ through collaboration in education, food security, biomedicine (particularly cancer and blood pressure research), solar energy, light industry, and tourism. Intensifying engagement with China has also produced challenges for Cuba, where prior experience with the United States and the Soviet Union has generated acute political sensitivity about excessive foreign influence. Elsewhere I have discussed the key political and economic factors shaping contemporary Sino-Cuban relations (Hearn forthcoming); rather than repeat this discussion, the next section draws primarily on ethnographic data gathered in Beijing and Havana to discuss how the Cuban state has incorporated China into its administrative priorities.
China and Cuba: Reordering the Local
China is Cuba’s second largest trading partner after Venezuela, with 2.7 billion dollars in bilateral trade reported for 2007 (Cubaencuentro 2008). This trade is more valuable to Cuba than to China, though this could change if Chinese oil, nickel, and electronics manufacturing operations in Cuba expand. Furthermore, for the eight resource-rich countries that comprise Latin America’s “New Left”, Cuba is a unique ideological symbol of resistance to U.S. hegemony. For China, whose pursuit of Latin American natural resources is at least as voracious as that of the United States, cooperation with Cuba, strongly supported by Raúl Castro, decreases the danger of being perceived in the region as an external—potentially imperialistic—threat to economic sovereignty.
In the wake of the Soviet collapse, China has become an important commercial and political partner for Cuba, though as Mao Xianglin of the Chinese Academy of Social Sciences notes, Chinese officials are not interested in replicating the Soviet experience:
I think we have to recognize that although bartering with Venezuela and other countries—for example doctors for oil—is of great value to Cuba, it is not enough. There will never be a return to the Soviet model, and nor would this be a good idea. The Soviets essentially gave resources to Cuba for political reasons, but this is not sustainable and it creates a dependency. Using Chinese expertise Cuba could come to produce electronic goods for sale to Latin America, but at the same time could also open its domestic market very gradually. I think both will happen (interview, December 14, 2007).
When Hu Jintao visited Cuba in November 2008, he donated $8 million to assist Cuba’s hurricane relief efforts, offered a $70 million credit for modernizing Cuba’s hospitals, and proposed 37 new projects for Chinese investment on the island. He also extended the deadline for the repayment of a $7 million credit granted in 1998 and deferred until 2018 the payment of Cuba’s trade imbalance with China accumulated prior to 1995. In the area of education, Hu affirmed that between 2006 and 2011, Cuba will have trained 5,000 Chinese students in medicine, tourism, and Spanish.
Among Chinese economic activities in Cuba are sales to state-run transport sector, nickel extraction, oil exploration, and industrial manufacturing. Local sources report that Chinese electronics manufacturers have built a three-story production facility in Havana to compile small appliances for sale to the Cuban and Latin American markets, an objective supported by Chinese investment in Cuba’s transport and telecommunications infrastructure. This initiative is also supported by Raúl Castro’s April 2008 lifting of restrictions on the domestic sale of televisions, VCRs, mobile phones, computers, and electronic appliances. This has legalized the sale of products that were already widely in circulation through informal channels, effectively formalizing, expanding, and regulating a commercial sector with enormous growth potential between Cuba and China, where most of these products originate.
Limited informal trade flows both ways between Cuba and China. Cigars, for instance, are popular among China’s emerging wealthy class and resident foreign executives, who pay upwards of 250 yuan ($40) for Don Diegos from the Dominican Republic, Flors from Honduras, and more recently Cohibas from the Cuban state tobacco company Habanos. At this price cigars are beyond the reach of most Chinese people, but in a country of 350 million smokers, where conspicuous consumption is increasingly pervasive, there is growing demand. Altadis, the fifth largest tobacco company in the world, has developed a strategy for meeting this demand: a less expensive, synthetic line of cigars, artificially flavored with vanilla and cognac. Unconvinced, many aspiring aficionados opt to buy genuine Cuban ‘puros’ under the table in trendy cigar bars for the standard price of 100 yuan ($17), or on the streets of districts frequented by tourists, like Beijing’s Sanlitun. Owing to a combination of high import duties and a shortage of official retail licenses, contraband is cited in one report to represent approximately 90% of total cigar sales in Beijing, Shanghai, Shenzhen, Guangzhou and Zhuhai (Hua 2005:37).
As discussed below, illicit merchandise also enters Cuba from China, but in contrast to their Mexican counterparts, Cuban authorities carefully monitor—and have effectively contained—the emergence of unregistered commercial linkages between local entrepreneurs and Chinese business partners. Legalization and regulation of informal practices has in fact been one of the Cuban government’s key mechanisms for overcoming the political and economic difficulties of the Special Period. This is evident in the growth of neighborhood development projects that incorporate—and often rely on—the participation of unregistered religious communities, women’s groups, and community associations that were previously excluded from official state activities. As I have argued elsewhere, since 1990 such projects have drawn together a diverse array of state and non-state actors, whose combined social capital is at the core of Cuba’s emerging civil society (Hearn 2008). The Havana-based Group for the Integrated Development of the Capital has argued that to conserve societal stability through Cuba’s current phase of socio-economic transformation, it will be increasingly necessary to “bridge the widening gap between state structures and community life”, or put another way, to “formalize the informal” (Coyula, Coyula, and Oliveras 2001:12, GDIC 2001:1). As engagement with China stimulates a new variety of transformations on the island, it is no coincidence that this is precisely what the state has set out to accomplish in Havana’s Chinatown, Barrio Chino.
Havana’s Barrio Chino: A Political Frontier
Deepening trade relations have led Chinese diplomats and businesspeople to build relationships with Havana’s Cuban-Chinese community, which is descended from indentured Cantonese workers who settled in Barrio Chino (Chinatown) in the late 19th and early 20th centuries. Just as foreign investors use family and professional connections with Communist Party officials to expedite business agreements in Mainland China (Gold et al. 2002, Smart and Hsu 2004), in the mid 1990s, visiting entrepreneurs from China began to team up with partners in Barrio Chino to establish networks of trade in everything from shoes and t-shirts to silk sheets and Chinese souvenirs for foreign tourists. This commerce started off legal, but a combination of high taxes and low returns from state stores drove most of it underground, where it was assimilated into Barrio Chino’s extensive mercado chino (‘Chinese market’).
Linkages also developed in the diplomatic sphere as visiting Chinese politicians sought to identify and collaborate with local cultural and economic protagonists. One of these protagonists was Roberto Vargas Lee, a descendent of Chinese immigrants and president of the Cuban School of Wushu Tai Chi. Since the mid 1990s Vargas Lee has become a prominent representative of the Cuban-Chinese community through an almost Weberian combination of personal charisma and historical circumstances, the most important of which are worth recounting.
Starting in the 1840s, Chinese immigrants and their descendants organized themselves into 12 mutual aid societies based on biological lineage, geographic origin, profession, sport, and political affiliation. The societies provided a range of local administrative and commercial services, including health care, fruit and vegetable sales, production of artisanal goods, laundry services, and restaurants. Informal networks of trade built over the decades with rural suppliers of raw materials and vegetables fuelled the growth of these industries, the restaurants in particular. In the early years of the revolution the societies saw most of their economic ventures nationalized, with only the restaurants—and their unregistered supply networks—remaining in community hands. The societies were further weakened by social discrimination when Cuba’s relations with China soured in the wake of the 1965 Sino-Soviet split.
Following the demise of the Soviet Union, Sino-Cuban relations improved and the ethnic societies resumed some of their public administrative activities. In 1994, for instance, their coordinating institution, the Casino Chung Wah, played an integral role in the formation of the Grupo Promotor (Promotion Group) of Barrio Chino, an organization set up with an unusually high level of decentralized managerial authority to oversee the neighborhood’s economic development. According to Yrmina Eng Menéndez, member of the Casino Chung Wah and the first director of the Grupo Promotor:
By 1997 many of the small restaurants wanted to expand, and since we had been put in charge of administrating them, we facilitated this in the Grupo Promotor. We recognized that the time was right for this kind of expansion; it was something of a ‘magic moment’ that we took advantage of through our connections and links in the Party and the government. Since then, through periods of economic opening and closure, we’ve managed to maintain the independent character of the restaurants. Knowing when to take opportunities and when to be patient is a Chinese value; so is the establishment of person-to-person links, so in this sense Barrio Chino really has been built on Chinese traditions (interview, January 17, 2006).
As tourism to Cuba grew in the 1990s and early 2000s, the Chinese ethnic societies and their restaurants reemerged as economic actors, but their ageing leaders never regained their former prestige, influence, and capacity for neighborhood organizing. At the same time, Sino-Cuban diplomatic relations were intensifying, and a need arose for dynamic local actors capable of representing and deepening bilateral cultural relations. The young, charismatic, and socially connected tai-chi master Roberto Vargas Lee was an ideal candidate, and upon his return from a year of study in China in 1995, he emerged as the new public face of Chinese heritage in Cuba. With over 1,700 students in the city of Havana ranging from four to 90 years old and a weekly martial arts television show, he has come to command broad popular respect.
Vargas Lee also harbors economic appeal, in part through his father-in-law, a businessman from Mainland China who recently moved to Barrio Chino to invest in its restaurant sector. Gaining entry into the local milieu through Vargas Lee, he has established himself as a point of reference for visiting Chinese politicians and executives. Some of these have shown their goodwill by financing the renovation of Vargas Lee’s tai-chi school and furnishing it with a minivan, a home office system, and a donation of $6,000 to raise awareness of Chinese cultural and economic customs (Roberto Vargas Lee, interview, February 13, 2006).
Mindful of the socio-economic potential of these international connections, the Cuban government has also established cooperative relations with Vargas Lee, financing his team’s trips to China each year to participate in the annual World Tournament of Wushu. Friendship with Vargas Lee and the broader Barrio Chino community is crucial for the Cuban state, which is currently engaged in a campaign to deepen its legislative authority over the Chinese ethnic societies and the district’s economic development. A major symbolic step of this campaign was taken on January 1, 2006, when the Office of the Historian of Havana, the government department that controls the neighboring district of Old Havana, extended its reach into Barrio Chino by dissolving the Grupo Promotor and taking over its economic and managerial responsibilities.
One of the Office’s objectives in assuming control of Barrio Chino is to generate revenue by widening the neighborhood’s formal sector economy, particularly through tourism, to pay for local development projects. It is essentially the same strategy that the Office has pursued, with impressive results, in Old Havana. In 2002, the Office of the Historian’s director, Dr. Eusebio Leal Spengler, described his vision of local development:
Tourism is here to stay, and it will increase a hundredfold when the blockade is abolished. Economically, I calculate that for every Cuban employed in tourism, ten people live. The point is to use tourism as a mechanism for development, which other countries have demonstrated is possible. That said, we reject the idea of turning our historical center into a theme park and novelty show; instead we work to improve schools, living conditions, participation, and jobs (interview, April 29, 2002).
Vargas Lee has cemented his position of authority in the new administrative regime by delivering public speeches that exhibit a careful balance of respect for the Office of the Historian, the local ethnic societies, and the People’s Republic of China. On the eve of the administrative take-over, he addressed a wall-to-wall audience in Barrio Chino’s renowned pedestrian-only avenue El Cuchillo de Zanja (Zanja Canal), soliciting the support of the community for the Office of the Historian as it implements its new system of economic governance:
I speak to you in the name of the Cuban School of Wushu, in the name of the State, and in the name of the Party, who we are always disposed to defend in anything. There’s nothing more important to Barrio Chino at the present time than Cuba’s relations with China; this is why our activities in the Wushu School are not only a matter of sport and competition, but also a political matter...The changes that we are going to see in Barrio Chino are going to be very beneficial for us, and we’re seeing the results already. There are many things that we want to see but we know we can’t have everything; we entrust these decisions to the wise vision of the city authorities, and we have to have full confidence in them. We can’t work independently of the societies and the Casino Chung Wah, because anything that we accomplish will only happen through unity (public speech at El Cuchillo de Zanja, December 30, 2005).
By early 2006 the impact of the Office of the Historian in Barrio Chino was evident in the paving of formerly dilapidated streets and the establishment of official shops to expand the formal sector economy. Some of these shops met with local opposition because of the unaffordable prices of their products, and others because they were perceived to degrade local Chinese traditions. When one restaurant operated by the Office of the Historian’s commercial enterprise Habaguanex sought to increase profits by selling pizza and spaghetti in the heart of Barrio Chino, street protests forced it to refine its menu. To its credit, the Office of the Historian subsequently arranged a series of meetings with community leaders to deepen its knowledge of local concerns and priorities.
A less visible but more encompassing reform was the gradual institutionalization of the neighborhood’s commercial practices. The restaurants, for instance, were subjected to a new bookkeeping scheme in which their account activities were meticulously documented, bringing many of the informal rural supply networks into the official economy. Detailed regulatory codes were also introduced to the community organizations of the neighborhood. While generating funds from tourism is clearly one of the Office’s goals, its encompassing objective is the incorporation of collaborative social ties and local social capital into an administrative scheme that facilitates more transparent and regulated transactions. This will ultimately allow more meticulous state supervision of partnerships between local actors in Barrio Chino and collaborators in Mainland China.
The Office of the Historian has effectively preempted the expansion of unregistered local-foreign linkages by harnessing the productive energy of Barrio Chino’s restaurants, institutions, and protagonists into officially managed projects. This clearly serves the purposes of the state, but it may also bring new opportunities to the local community. As Peter Evans (1995, 1996) has argued, a key challenge in building effective development projects is the establishment of cooperative channels across the ‘public-private divide’ that derive broadly shared benefits from private circles of solidarity. In Putnam’s terms, herein lies the problem of converting introverted “bonding social capital” into an externally oriented “bridging” form (2000:22–23). It is not yet clear if the administrative reforms of Barrio Chino will provide community groups with modes of engagement that allow them to advocate their interests in new ways, but comparative evidence suggests that local community solidarity can only provide a solid basis for launching development initiatives when it is complemented by the construction of precisely such vertical synergies (Woolcock 1998:175).
According to one Barrio Chino official, the Chinese government—represented by its embassy in Havana—has expressed concern that the new regulatory regime may complicate the district’s integration into a global network of Chinatowns coordinated from Beijing. The challenges faced by the Havana embassy, however, are probably less significant than those faced by other Chinese embassies around the world, which have had to overcome political differences with descendant communities historically affiliated with the Kuomingtang (China’s Nationalist Party, founded in 1912, based on Taiwan after 1949.)
Sino-Cuban relations appear destined to expand, underwritten by economic collaboration in science, education, industrial manufacturing, and natural resource exploration. Chen Jiagui, Vice-President of the Chinese Academy of Social Sciences, recently argued that political affinities between the two countries bind them together in the common goal of developing the ‘Third World’:
In the contemporary process of globalization, how can the world’s countries and nations decide their own destiny and propel themselves along a development path that achieves their unique interests? The spirit of José Martí of not submitting oneself to tyranny, and to persist in the struggle against a supposed ‘determined destiny’, resonates with the ideological objective of the Third World to achieve its own development (Chen 2003:27-28).
Except for the notable exception of the oil sector, Mexico generally operates according to free market principles; by contrast, despite the gradual broadening of spaces for private entrepreneurship under Raúl Castro, Cuba remains a state-run economy. These distinct approaches to economic governance have produced different strategies for engaging with China, which for its part, has demonstrated an unorthodox capacity to engage with both state-managed and market-oriented systems.
Perceptions of China in both countries range from concern about potential threats to national interests to optimism about emerging opportunities for market expansion and industrial collaboration. Mexican economic trepidation is based primarily on the country’s inundation with Chinese imports, which, together with illicit trade, has produced devastating competition for Mexican manufacturers both domestically and in their primary export market, the United States. The political fallout for the Mexican government is twofold: first, it faces the dissatisfaction of Mexican industry leaders about inadequate protective measures, and second, its efforts to meet Chinese demand for energy resources by opening the oil sector to foreign investment has provoked a hostile public response. Nevertheless, opportunities for deeper collaboration exist in the development of manufacturing chains, the refinement of educational exchange programs, and the placement of Mexican products in the booming Chinese consumer market.
For Cuba, a historically accrued wariness of excessive foreign influence has colored the character of engagement with China. Suspicions have been largely overcome through state supervision of economic collaboration, for instance, through joint ventures in oil and nickel extraction, biomedicine, tourism, and light industrial manufacturing. Developed through direct bilateral governmental channels rather than in the private sector, these ventures are carefully monitored and contained within the policy objectives of the Cuban state. Aware of the politically and economically debilitating consequences of black market commerce, the Cuban government has preempted the formation of unofficial lines of illicit cooperation like those that exist between China and Mexico. This is evident in the assimilation of Barrio Chino, a historically notorious center of black market activity, into the administrative control of the Office of the Historian at a time when Sino-Cuban engagement is deeper than it has ever been. Furthermore, Raúl Castro’s legalization of trade in appliances, TVs, VCRs, and other electronics further reduces the impact of Cuba’s already extensive informal sector while simultaneously opening the way for expanded official trade with China.
Chinese officials interviewed in Beijing argue that their country’s collaborative projects in Latin America endeavor to learn from the successes and failures of the United States in the region in order to provide alternative, more locally beneficial programs of economic cooperation and development. The existing evidence from Latin America does not permit a conclusive assessment of the local costs and benefits implicit in this agenda. What is evident is that China’s ability to simultaneously engage in free market commerce with countries like Mexico and state-to-state exchange with countries like Cuba has framed its collaborative projects in an unusually broad, coordinated, and long term set of social, political, and economic objectives.
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